Fraud Prevention And Control In Banking System

Project and Seminar Material for Criminology And Security Studies

Fraud Prevention And Control In Banking System


Abstract


This study was carried out to examine fraud prevention and control in banking system using staffs of three (3) selected banks in Ikeja, Lagos State as case study. Specifically, the study was aimed at studying critically how fraud in banks could be prevented and controlled, evaluate the easiest way ration of fraud and other fraud committed could be electronically captured, and proffer ways to reduce the spread of fraud in our banking system, through effective monitoring control procedure and efficient monitoring electronic transaction until properly executed. The study employed the survey descriptive research design. A total of 60 responses were validated from the survey. From the responses obtained and analysed, the findings revealed that financial fraud in banking system is difficult to be prevented and controlled in banking system, bank fraud has no negative effect on the profitability of the banking system, and bank fraud has no significant impact on depositors confidence in banks. The study therefore recommendsdormant account should be closely monitored and any transaction on them should be monitored with the consent of management inspector from the central bank of Nigeria must be allowed to visit and inspect the bank records at least once every year. This is to ensure that the bank are complying with CBN regulation and other statutory provision. Also, adequate discipline must be maintained among staff and professional ethics preached regular basis. Any observed fraudulent practice must be matched with adequate sanction. Each case must be purely treated on its merit.


Chapter One


1.0 Introduction

1.1 Background of the Study

Banking system in our economy is a very vital sector and their position in our economy can not be over emphasized. The banking system in Nigeria was fashioned along with that of Britain the banking system act as financial intermediate for funds between the deficit and surplus sector of the Nigeria economy.

Nigeria banking sector is made up of the central bank of Nigeria (CBN) commercial banks, merchant bank, development bank and specialized banks. This banks deal on various financial instruments and development there are transferable and desirable in nature. Not withstanding, the recent incident of fraud and forgeries tend to pose a serious bottle neck to proper functioning of the banking system, thereby incensing the association risk and business system loss report early.

The oxford dictionaries defined fraud as criminal deception deceptive tricks cheating swindling but Longman dictionaries’ prefers to defined fraud from the view point, fraud in fact and fraud in equality.

According to Okezie (1999) 9.476 frauds involves the use of deception to obtain an unjust or illegal financial advantages or also CBN banking supervision annual report 1998 defined fraud as involving the willful misinterpretation, the deliberate concealment of material fact or the purpose of inducing another person to do something. Poss. J.A (1990) P.99 also defined fraud as a legal term for a purposeful deception that result in financial loss to another.

However, an over view of event in the law few years not helping matters at all. In this part of the world, fraud and person with questionable character are applauded and honored with chieftaincy titles and can not fight this epidemic instead, more person grow for the act daily. Frauds generally, are motivated by greed. This is true because the rise in the activities of fraudsters tend to respond due to the desire of wealth and the intention to receive and obtain benefit at the detriment of another person

A recent survey by financial institutions forms the major part and plays the major role (Ngwu, 2012). The size of an enterprise usually determines the size of fraud perpetrated in it, the banks are the most victimized as it has leads to many bank failures in Nigeria in particular and the entire globe in Nigeria.

Going by this backdrop, the problem now is how to effectively monitor activities of these fraud, which seen to be matching their skill with rapid development in the system. Fraud has been viewed as inherent in nature of banking operations still it can be prevented or reduced to the bearest minimum. However, the report of December 2002 prepare by the financial institution investigated (that in the fourth and also affect the economic growth in Nigeria) quarter, 36%m of the banks that rendered returns repeated, experienced one forgery and fraud or other of the total of 176 cases. And amount involved in the case was N 802.07 million

On the forgoing, I wish to adopt chi-square technique and to analyse the report of data collected from the three selected bank visited for my study.


1.2 Statement of the Problem

Many banks today have suffered a great financial loss in the end of numerous financial transaction and unsecure loan. Fraud has become sophisticated as to make a forged cheque look good for the owner to confirm it was his own signature, frequent occurrence of fraud ultimately distracts the attention of the management and leads to increased running cost. However, the major problem face in this study is that

Fraud brings about unwanted losses for bank and equally put the management on a confused state of mind and also effects the economic growth of Nigeria while spending hard earned control.

Any case of bank fraud clips of a bit of public truth in financial institution and as well, so down the development of banking habits. Moreover, it can easily be noticed that if nothing is done to control these ugly incidence, sooner than letter fraud could lead to total collapse of the economy as a whole and the wind up of bank if care if were not taken


1.3 Objective of the Study

Having successfully indicated the numerous problems obtained on finance fraud in the Nigeria banking system, the main objectives in caring out this research work will now be stated.

  1. To study critically how fraud in banks could be prevented and controlled.
  2. To evaluate the easiest way ration of fraud and other fraud committed could be electronically captured.
  3. Ways to reduce the spread of fraud in our banking system, through effective monitoring control procedure and efficient monitoring electronic transaction until properly executed.

1.4 Research Question

Considering the importance of this study, it has become imperative for the researcher to postulate the following question.

  1. Is it true that fraud is inherent in banking operation?
  2. Does fraud have any impact on the bank?
  3. Why is it that it takes months for fraud to be dictated?

1.5 Research Hypothesis

The research on fraud prevention and control in the banking system is a fact finding one therefore, the research hypothesis did not just emerge from the blue was draw from the nature of the problem at hand for emphasis purpose, it is described as a tentative statement about the variable stated below. Therefore the hypotheses are as follows:

  • Ho1; Financial fraud in banking system is difficult to be prevented and controlled in banking system.
  • Ho2; Bank fraud has negative effect on the profitability of the banking system.
  • Ho2; Bank fraud has significant impact on depositors confidence in banks
  • Ho1; Bank fraud has no significant impact on depositors confidence in banks

1.6 Significance of the Study

Although this research work is not exhaustive one because of the non availability of some important information and limited time all part of this work is to financial institution.

Moreover, this study is prepared for these who may be interested or willing in carrying out further investigation on fraud with special reference to financial institutions. However the banks will benefit greatly from this research work in preventing and controlling of frauds in their banks and this they cab achieve by adopting and implanting the different ways suggested by this study in management control system.


1.7 Scope of the Study

Due to financial and time constraints usually associated with studies of this nature, the scope of this study is Access bank plc, Spring bank plc and first bank plc; all are selected banks in Nigeria.


1.8 Limitation of the Study

Finance was one of the major constraints that limited the work intended to be undertaken by the researcher. The fact that there is inadequate fraud at my disposal accounted for the un-intensive fact finding in the course of my study.

Time constraints are also another factor that limited this research work. The purpose of this study is so small but above all the result of this work falls above the mediocrity.

Finally the unco-operative attitude of staff of the selected banks become problematic, as three was no access to source for information required for the study.


1.9 Definition of Terms

Control:

Control in the context implies taken to minimize occurrences such as fraud.

Document:

A document according to 5.467 of the commercial code include, register, and paper paramount or other material whatsoever used for writing, printing , which is marked with and letter or any letter or any other signs capable of conveying definite meaning to persons conversant with them but does include trademarks on goods. A document is not only in writing papers and in voucher, cheques etc but include writing based on words stone or metal etc.

E-fraud:

These are financial fraud committed through the use of bank information technology facilities.

False Documentation:

Documentation is said to be false if it contains alteration in any material part.

Fraud:

This is a legal term for a purposeful deception that results in financial loss to another.

Fraudster:

These are persons who professionalized in defiantly people of their earned income and legal acquired properties.

Forgery:

This is falsification of document or instrument purport to be real when it is not.

Prevention:

This refers to measures taken to avoid occurrence e.g something.


Chapter Five


Summmary, Conclusion and Recommendation

5.1 Summary

Each bank has the own mean of preventing and checking financial fraud some of those device a incorporated in the management structure of the bank or sometimes initiate by the management concerned in the cause of this research work it was discovered or revealed that fraud is inherent in all banking operation . The reason is that banks deals on cash valuable which are disinable as to induce a corrupt mind into through which bank can be defrauded but greater parts are penetrated through forgeries and defectives of customers’ lodgment.

Even though some staff involves in fraudulent practices, it was discover that they do this mainly in collaboration with outside. In the same vein, single handedly increase. This time they are not use the assistance of a staff, but operate through a computer scientists or expert who intercepts the flow of transaction without the knowledge of nation banks. It was for this reason that the rate of fraud through fictions transfer institutions has been the most prevailed way through which bank institute some controls however, have been yielding result, but people are of the opinion tat it will entail a lot of time which may cause delay in banks. But in the cause of this research, prompt services have maintained.

On the area of staff involvement in fraudulent practice it was discovered that banks either leaves with the money stolen. This is a development which does help the system. One would have expected as to return the money stolen.

During this research work it has been period that caused lack of sound internal control, proper accounting procedure and inside involvement. Even when it is reported and investigation commence, yet another difficult is the cooperation of member of the staff. Some of them who are in position to give vital information will always decline.

During this study, it was learnt that fear of the outcome of investigation and staff involvement in the reported fraud are some of the reasons a staff would not want to assists an investigator.

Finally, in course of this research work two dispute issue, which formed my first and last hypothesis, were addressed, it has now been established that fraudulent practice in bank can be presented and controlled using sound internal controls, proper accounting procedures and period audit by an external auditor.

Also established the fact that fraud actually has a negative effect on the profitability which decline the profit level, loss of public confidence/trust and eventually loss of customers


5.2 Conclusion

Banks have a duty to promote and maintain adequate banking services for the public via the restoration of banking confidence among the population.

The government also has a part to play in the game of fraud control.

Fraud should not be allowed to destroy the very society we are trying to build. It has destroyed the dignity of the banking sector and the confidence between bank and their customers. It is threatening the while economy and it is time appropriate actions were taken by both banks and the government.

The problem of detection and prevention of financial fraud is not only limited to the three bank only and the banking system but the whole facts of our society. A society where there is standard number of behaviour where corruption high and low places to the other of the data and where amazing wealth grading is the burring desire of money. How can we save the bank system?

As already noted there is no full proof against financial fraud in the society at large. We can only attempt to minimize it. This is true because, fraudster will always think ahead of the already existing check and balance. It obvious to the bank then to employ all reasonable and practicable measure to project the depositor and shareholders otherwise fraud can ruin the entire system. Existing laws should be reviewed and restricted to complements the efforts of the banks and other actions we can be sure to have a society with minimal incident of frauds.


5.3 Recommendation

Having explored in various ways the detection and prevention problem posed by fraudulent activities in the banking system, the researcher makes the following recommendation in the hope they would be of help to bank managers in minimizing the problems.

It is the duty of the police to prosecute crimes relating to bank fraud. This individual bank should not allow to prosecute the fraudster. This is to give room for an independent investigation without any form of interference by a staff who may twist in fraudulent activities that are going sophisticate the police should be well equipped and trained to match the sophistication of the current wave of fraud.

Another one is the judiciary which has been severally accused of delay justice and most times setting criminals free on more technicalities. Offenders should be well punished and made to reproduce everything that was stolen.

Bank should always stay ahead of cyber fraudster by being up-to date with the development in the world of information technology. They should not rely on any obsolete system and till prey to the net of creek. A good internal control mechanism is designed to divide responsibilities so that one person’s work is checked by another and then authorized by a higher official managers should come from outside the branch to act and check any unhealthy collusion existing in the branch. The personnel department within who jurisdiction is to recruit should do everything possible to ensure that people of undoubted integrity are employed.

Banks should get ride of non qualified staff the should also be a form of infer bank co-operation understanding.
Dormant account should be closely monitored and any transaction on them should be monitored with the consent of management inspector from the central bank of Nigeria must be allowed to visit and inspect the bank records at least once every year. This is to ensure that the bank are complying with CBN regulation and other statutory provision

Finally adequate discipline must be maintained among staff and professional ethics preached regular basis. Any observed fraudulent practice must be matched with adequate sanction. Each case must be purely treated on its merit.

There should be clear-cut arms length relationship in all transaction and firm of promiscuous relationship shall be condemned as they may be determined to the system. Where two staff enters into marriage with each other one should resign, with these, it is to believe that there should be a way forward for banking system.


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